During the 2020 election campaign, President Donald Trump warned that former Vice President Joe Biden’s victory would result in the evisceration of your 401(k). A bit of hyperbole? Yes. The likelihood of this happening? Probably not. Does a Biden administration threaten the long-term health of the U.S. economy? If he employs the radical leftist agenda, it is a possibility the United States endures another makeover. So far, the financial markets have not experienced a meltdown since Biden was declared the projected winner in the presidential contest. If the equities arena is popping, what are they telling us?
There was incredible volatility in the leading benchmark indexes throughout Election Night, stemming primarily from uncertainty over the winner. When it looked like Biden, who attempted to convince voters he was running for the U.S. Senate, would defeat the incumbent, stocks calmed down. It was not so much a rally for Biden, but rather a surge for certainty. In the days leading up to Election Day, financial markets were pleading for assurance and a clear winner. Investors received this – for now.
Over the last week or so, the Dow Jones Industrial Average has risen 6%, the S&P 500 has climbed 4%, and the NASDAQ Composite Index has jumped only about 1%. However, most of these gains have come on the news that Pfizer and BioNTech have developed a coronavirus vaccine that is 90% effective, producing euphoria across the international marketplace. But even the inoculation-induced rally deflated during the November 9 trading session.
For now, COVID-19 stimulus and relief will be the focus in the broader markets. It is widely expected that a Biden presidency would advocate for more lavish spending, even more than what President Donald Trump has approved this year. This matters because the Wall Street and Main Street economies depend on a routine injection from Uncle Sam to survive and perhaps thrive under today’s conditions. The Federal Reserve has also confirmed that it has not run out of ammunition, hinting that it is ready to fire off more monetary weapons to support the recovery. The U.S. central bank has been pushing Congress to not be afraid to give the nod to additional deficit-financed spending as part of the nation’s resuscitation. So, with unlimited quantitative easing, trillions in fiscal stimulus, historically low interest rates, and a coronavirus vaccine, the stock market is on its merry way to a surge under Biden. Essentially, the worst is over and much of the heavy lifting had already been performed.
Gold and silver prices could be one of the best indicators for potential trouble brewing. The metal class suffered a monumental selloff on November 9, resulting in the sharpest drop in seven years. In the sessions following the electoral battle, gold had topped $1,950, and silver surpassed $26. Why does this matter? The performance in metal commodities suggests that investors anticipate inflation, which makes sense considering that the Fed has printed trillions of dollars and Washington is poised to spend trillions more, enabled by the Eccles Building.
The U.S. dollar, meanwhile, has continued to trend downward due to ferocious risk appetites among traders. Year-to-date, the U.S. Dollar Index (DXY) has slumped more than 3%. A weaker buck is good for the nation’s exports since a lower greenback makes the country’s products cheaper for foreign investors and importers to acquire. Will the dollar maintain its weakness under Biden? Unless there is another substantial financial crisis, it is more than likely that the currency will slide against its peers in the foreign exchange arena – a good thing for agriculture, manufacturing, and energy.
Bullish on Biden?
President Trump or Biden – the U.S. is poised to suffer a debt crisis. Under the 45th president, the federal government has returned to trillion-dollar deficits, raising the national debt to $28 trillion. Under Biden, it would most likely get worse if he approves the $100 trillion Green New Deal, the trillions in free tuition and health care, and the trillions the country is already obligated to spend every fiscal year. The financial markets are in a position where government spending and central bank money-printing are essential components of the national economy. The consumer, the investor, and the politician are reliant on the nation hemorrhaging red ink. Without these crutches, the country would fall off the cliff.
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